Five ways to pay off your mortgage faster
The faster you pay off your home loan, the less you spend in interest. We’re talking serious savings here. Say I have a home loan of $700,000 over 30 years and I’m paying 4% interest. My basic repayments on a principal-and-interest loan will be $3342.
- Paying an extra $50 a month will save me $16,180 in interest over the life of the loan and knock 10 months off my mortgage.
- Paying an extra $100 a month will save me $31,282 and I’ll be mortgage free a year and seven months sooner.
- Paying an extra $500 a month will save me $123,862 and I’ll be mortgage free six years and seven months sooner.
So how can you pay off your debt more quickly? Essentially the answer is that paying more now means you save more later. Here are five quick tips to help you achieve that goal:
1. Round up repayments.
In our example, instead of paying $3342 each month, round it up to $3500. That would save me $47,596 over the life of your loan and I’d be mortgage free about two-and-a-half years sooner.
2. Refinance when fixed terms expire for a better deal.
Often you can get cash back and if you apply that to your debt, it can really make a dent. Applying $4000 as a lump sum to the example mortgage above saves me $9189 in interest and three months off the end of my loan. If you get a better rate…
3. Maintain your repayments when interest rates fall.
This means you’re overpaying and, as you can see from the numbers above, overpaying now really saves you money in the long run.
4. Have the right loan and entity structures.
Depending on your circumstances, a revolving credit or offset loan might be a way to pay down debt more quickly, particularly if you are self-employed. You may also find that your accountant can help you structure your businesses or trust accounts to reduce your tax burden and that money can go toward debt repayment.
5. Add lump sums when you can.
Even on a fixed-term loan, the bank will allow you some leeway to make extra lump sum repayments. If you get a bonus or your granddad sends you some money for Christmas, spend half, put half on the mortgage.
Ultimately, repaying debt is a risk-free return equal to your interest rate, so it’s a fantastic way to boost your overall financial position.